The UAE plans to introduce a 9 per cent tax on corporate profits from June 2023 as part of an ongoing plan to diversify the economy from oil and gas revenues and ease fiscal pressures. While the UAE’s tax-free status has long attracted global businesses, the levy-free regime has helped grow the economy of the Gulf nation as a global business hub.
In the recent past, the UAE has pushed through several long-awaited moves aimed at encouraging a population overwhelmingly comprised of foreigners to stay for the long-haul. In the anti-discrimination provisions, employers are now prohibited from hiring or firing on the basis of race, color, sex, religion, nationality, or disability that would weaken equal opportunity or impair equality in the workplace. In the last month, the country switched to a Monday through Friday work week to better align with the global economy, making doing business with the Western markets less difficult. In 2020, the government abolished the need for companies to have Emirati shareholders -- a major shake-up of foreign ownership laws.
Most recently, reflecting a focus on its diversity, the UAE adopted law amendments that will allow granting Emirati citizenship to investors, specialized talent and professionals. This select group of foreign professionals will include doctors, scientists, engineers, artists, authors, and their families.
Assessing the full impact
In 2018, the low inflation and high quality of life allowed the public to absorb a 5 per cent VAT comfortably and it seems it is time now for UAE corporations to factor in our support to contribute to the fabric of nation-building. As the tax is levied against an adjusted accounting profit, the net impact may be less than 9 per cent. The June 2023 implementation date gives companies 18 months to decide whether to absorb this (fully or partially) or pass it on to the consumer through price adjustments.
A 0 per cent tax rate will be applicable on taxable profits up to Dh375,000 in an attempt to support small businesses and startups. This could well be the most competitive tax arrangement in the world, and as it seems Dubai, being home to the regional business hub, will probably be the greatest source of corporate tax revenue.
There is hope that in addition to the UAE’s extensive network of double-tax treaties, the corporate tax regime, designed to support the strategic ambitions of the government, will drive growth for businesses and in the long run position the UAE as an integral part of the global system. And there is another upside - the UAE will be better placed to address the challenges associated with the digitalization of the global economy and offer support for the introduction of a global minimum tax rate.
In sync with global moves
Aside from supporting the country where we are all privileged to live and work, the corporate tax may help UAE companies attract talent and expand into new sectors as companies operate in a jurisdiction where the laws are in line with the international tax transparency and governance agenda. This level of transparency may result in further stability and make it easier to do business around the world. The belief stems from the fact that there are still global concerns around international tax havens and the operating restrictions that are increasingly being imposed on non-taxable businesses in certain jurisdictions.
Hence, private sector companies only stand to benefit from this. Intricate computations of tax liability comprise highly specialized skills, so this should also create a new stream of employment by encouraging tax consultants to come and work in the UAE.
As the next 18 months unfold, those of us in large corporations that contribute to the UAE’s GDP by providing goods, services, and jobs for UAE citizens and residents will continue to plan our implementation of the corporate tax. And look for ways to mitigate the impact on shareholders and stakeholders while honoring the principles and intent of the tax’s implementation.
